Ballmer, black turtlenecks, and Microsoft's next big idea
The battle to re-top Apple's market cap
Comment Last week, we had two so-crazy-they-can't-be-true events that sent the internet into a tizzy. And both involved Apple and Microsoft.
First, word arrived that Microsoft chief executive Steve Ballmer would appear on stage with the God-like Steve Jobs at Apple's forthcoming World Wide Developer Conference in San Francisco, California. "OMG, this is too good to be true!" the world yelped. And, well, it was too good to be true, as Microsoft Tweeted later that day.
Second, Apple's market cap edged past Microsoft's, making it the single most valuable tech company and the second most valuable publicly-traded business after oil giant Exxon Mobile.
"OMG! Apple? With just 34,000 employees and its single-figure market share on the desktop?
"Doesn't Microsoft have an army of 100,000? Isn't it the maker of the world's most widely used PC operating system? Isn't Windows on 90 plus per cent of PCs? And, wait, didn't Microsoft give Apple a $150m cash injection in 1997 to help pull the then-ailing company - on hiatus from Steve Jobs and prior to the iMac/iBook - off the ropes?"
Oh, the irony! Bloggers and news sites nearly went rabid over this turnaround.
But let's put a damper on the hype. Attention fabois everywhere: Microsoft isn't so desperate that it needs to appear at an Apple developer conference. Is it less valuable than Apple? Maybe. But the answer isn't as straightforward as we've been led to believe.
Last year, in terms of revenue and profit, Microsoft was worth more than Apple. A trio of Microsoft's product divisions pulled in more dollars than Apple's entire business. Microsoft's Client division (home to Windows), the Server and Tools division (SQL Server and Exchange), and the Business division (Office) had combined sales of $46bn in the company's fiscal year ending June 2009, while Apple pulled in $36bn in sales across all operations for its 12 months ending August 2009.
Net income - that's profit - for Microsoft's three units was $28.2bn, versus $5.7bn for the whole of Apple. And at the end of 2009, Microsoft was sitting on $6bn in cash, versus Apple's $5.2bn.
This year, it’s looking like Apple will blow away Microsoft’s core businesses. Windows Client, Server and Tools, and the Business Division are shrinking, flat, or in single-digit growth for the first nine months of the company’s current fiscal year. Combined, the units have earned $20.6bn, compared with $22.3bn in the first nine months of last year.
And halfway into its year - boosted by the iPhone — Apple has reported that sales are nine billion dollars ahead of where they were this time last year. That's $29.1bn in revenues, and Apple's cash pile is now at $10bn, compared to Microsoft's $8.1bn.
But Apple may be susceptible to more fickle consumer buying habits, while Microsoft has the comfort of being embedded on business servers and PCs. That makes Windows, Office, SQL Server, and Exchange potentially more reliable earners. Office is certainly stable, pulling in a steady $14bn each year.
But this stability is also a problem. Stable businesses are like empires, impressively big in the present but doomed to fade. Microsoft’s big earners might be pulling in the billions today, but where’s the future growth? Interestingly, Windows Client sales and revenue are down 15 per cent and 18 per cent respectively for the first nine months of this year — despite the debut of Windows 7.
One reason for this might be Microsoft chief operating officer Kevin Turner’s decision to aggressively discount the new operating system to displace the company’s own Windows XP and beat the Mac and its seven-per-cent market share. If that’s the case, then Microsoft will hope the COO’s gamble of short-term loss for long-term market share pays off.
Next page: Beyond the core
Ballmer will right this ship
Yes, Microsoft's flight path is flat or descending. Apple soared past them last Thursday, and today has $12B more air under them - more than 5%. MSFT is on a collision course with Google, AAPL in danger of colliding with XOM.
But with Captain Steve Ballmer's steady hand at the controls...
Oh, darn. I can't even write that. I keep cracking up.
Windows Mobile is toast. They're not an also-ran, they're seriously in "who?" territory. The mini-msft blog today was totally hilarious, as was "Ballmer three envelopes" (Google it). The Kin is a non-starter, WinPho7 looks to be delayed to next year. Nobody wants WinMo6.5, and they don't have any leverage with carriers, and HP was in such dire straits they bought Palm for $1.2B. Android phones are selling 100,000 units a day. Even Dell is making an Android phone. WinPho7 starts with no apps - no cut & paste - no developers - no multitasking. We all had a good laugh at the Microsoft funded IDC whitepaper forecasting 30 bazillion Windows Mobile sales in 2011. That was rich. That'll really get them some play with carriers - a self-funded IDC whitepaper about a fictional product on the Microsoft side, real products and buckets and buckets of soft folding cash on the iPhone / Android side. That scale's going to tip in their favor for sure.
Their tablet plans are even better. They can't stop the iPad. Apple owes them nothing. Nobody has credibly announced a Windows 7 tablet launching this year and if they had one, they would have. Not for grads, nor dads, nor back to school season. Not for Christmas either. Apple will have a full year to put 12 million iPads in the hands of consumers with pent - up demand, and one might imagine those people show off their latest envy inducing gadget, buy some content and accessories. Microsoft's tactical response? They go after Android tablets. Brilliant! The strategy involves driving even more consumers and developers and content vendors (apps and books and magazines and movies, oh my!) into the camp of Steve Jobs so he can have even more money to suffocate Microsoft with. This is truly amazing leadership.
Microsoft still has Windows desktop, Office and Exchange. When we all have nice tablets and phones that don't have the problems that trinity does, I imagine we'll all feel somewhat different about a platform shift away from that mess. Or just walk away from it.
These huge profits you speak of for Microsoft... where are they? If they've been turning billions of dollars in profits per month for the last decade, where is that money? Seriously. Where did it go? You noted they don't have it. The dividends only add up to $25B so they didn't give it all back to shareholders. By your own count that's about 18 months worth. Where are the rest of these legendary, or perhaps mythical "profits"? Lost in the accounting somewhere?
"Microsoft is a follower not a leader"
Exactly right. Time was when they could do no wrong except in the eyes of techies who viewed their products with distrust and disdain.
Now Apple can do no wrong (coincidentally except in the eyes of techies, for different but related reasons) and have a 28% margin on everything they make. Overpriced? Certainly, but you have to admire it nonetheless.
So there's your target, Mr Ballmer, although the comment about slipping into a black turtleneck perhaps should refer to you slipping into another role...
Same old story
Steve Jobs was an Engineer, So was Gates after a fashion, Balmer is a bean counter. Whenever a bean counter leads a company, it is usually down. Gates and Jobs had vision, Balmer, a bottom line. I don't see MS dying anytime soon, but they have been left behind by Google, Apple, and others. Did people really upgrade to Win 7 because they thought it was good? or because Vista was such a pile of crap?
Inovation? At Microsoft? Where? Its just year on year updates on existing products. Most people in companies could really get by on word 97, but they keep churning out new versions with so many "improvements" and corporate buyers keep buying them. Why?
How long will it be before someone in Asia/China decides to free themselves from the America strangle hold on software?
Microsoft needs to remember its roots, its a software company. So why are they not writing oddles and oddles of great software and Apps for the Iphone, Ipad and Mac (at prices people are prepared to pay). It should be riding on the back of Apple's success. But no, they'd rather go head to head. Silly Balmer.